Lenders should be banned from offering mortgages for the least energy efficient homes, MPs have been told.

Ed Matthew, associate director of environmental consultancy E3G, told the Business, Energy and Industrial Strategy (BEIS) committee this morning (Tuesday) that financial regulations should be toughened up to provide home owners with greater incentives to install energy efficiency measures.

Giving evidence to the committee’s inquiry into energy efficiency, he said that one way of doing this could be to regulate that mortgages should not be issued for homes with an energy performance certificate (EPC) ratings in the lowest bands F and G.

And to provide a carrot, better mortgages could be offered for more highly energy efficient properties, like already happens in the Netherlands, Matthew said: “Financial institutions will need to be regulated to have a target on energy efficiency.

“They have made it very clear that they won’t invest in these sorts of products unless there is demand. We have to regulate to get them (lenders) to take it seriously.”

He said that all F and G rated properties should be “eliminated” over a five to ten-year period.

Eon UK chief executive Michael Lewis, who was also cross-examined by the committee, agreed that the level of mortgage payments should reflect the home’s energy costs.

The big six supplier has just launched a green mortgage pilot product with BNP Paribas.

He said that home owners and mortgage lenders must be better educated about how better energy efficiency can not only cut bills but also enhance the value of their properties.

“It needs to be something that people talk about when houses change hands: at the moment it’s down the list of priorities.

“If you want to unlock finance at a large scale, you need to get the banks involved.”

But Lewis said that improved incentives for owner-occupiers should be part of a wider framework to tackle poor energy efficiency in other areas of the housing stock like the private rented and social housing sectors.

And the government needs to provide the same kind of long-term leadership on energy efficiency that it has provided on renewable generation, he said: “It needs to be very hard, like the renewable energy targets. People were confident to invest because they knew it was a long-term target for the government.

“If the policy keeps changing, people don’t invest in supply chains, workforce and technology. This is why a long-term target is so important.

“The government needs to give a long-term commitment. Supply chains will come if people are confident that demand will be there to justify investment. Only government can give that strategic commitment that will give us confidence to invest.

“Once that strategic commitment is in place, companies will invest in the innovation.”

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